Circular No. 66/2010/TT-BTC guiding the determination of market price in business transactions between related parties

✦ Tóm lược thông minh

Circular No. 66/2010/TT-BTC guides the determination of market price in business transactions between related parties for the purpose of declaring corporate income tax obligations. The core provisions include analyzing and comparing independent and related party transactions, applying five appropriate methods to determine market price, and adjusting significant differences.

Đối tượng áp dụng

Enterprises conducting business transactions with related parties in Vietnam.

Các điểm cốt lõi

Enterprises conducting business transactions with related parties have the obligation to declare their corporate income tax liabilities.
Comparing independent and related party transactions to select an appropriate method for determining market price.
Five methods for determining market price: comparison of independent transaction prices, resale price, cost plus profit, profit comparison, and profit split.
Adjusting significant differences in transaction conditions between related and independent transactions.
Applying an appropriate method for determining market price based on four influencing factors: product characteristics, enterprise functions, contractual conditions, and economic conditions.

🌐 Tác động xã hội từ văn bản này

Positive impact: Ensuring fairness in the determination of market price between related and independent parties, preventing the abuse of related party relationships to evade taxes.
Negative impact: Increased costs for enterprises to conduct comparative analysis and adjust related party transaction values.

❓ Câu hỏi thường gặp

How many methods for determining market price are specified in the circular?

The circular specifies five methods for determining market price: comparison of independent transaction prices, resale price, cost plus profit, profit comparison, and profit split.

When do enterprises not need to make adjustments to the price?

Enterprises do not need to make adjustments if the ratio of costs or revenues related to significant differences in enterprise functions does not reduce taxable corporate income.

How many influencing factors are there when comparing transactions?

There are four influencing factors when comparing transactions: product characteristics, enterprise functions, contractual conditions, and economic conditions.

When is the profit split method applied?

The profit split method is applied to consolidated related party transactions involving multiple related enterprises, including exclusive products or closed related party transactions.

How many calculation methods are there in the profit split method?

The profit split method has two calculation methods: allocating profits according to the contribution of costs and dividing basic and excess profits.

Toàn văn

CIRCULAR

Guidelines for determining market price in business transactions between related parties

Pursuant to the Corporate Income Tax Law No. 14/2008/QH12 dated June 3, 2008;

Pursuant to the Law on Tax Administration No. 78/2006/QH11 dated November 29, 2006;

Pursuant to Decree No. 124/2008/NĐ-CP dated December 11, 2008, issued by the Government, detailing the implementation of certain provisions of the Law on Corporate Income Tax;

Pursuant to Decree No. 85/2007/NĐ-CP dated June 7, 2007, issued by the Government, detailing the implementation of certain provisions of the Law on Tax Administration;

Pursuant to Decree No. 118/2008/NĐ-CP dated November 27, 2008, issued by the Government, stipulating the functions, tasks, powers, organizational structure of the Ministry of Finance;

The Ministry of Finance hereby issues guidelines for implementing regulations on determining market prices in business transactions between related parties as the basis for declaring corporate income tax obligations of businesses as follows:

Part A.

GENERAL PROVISIONS

Article 1. Scope of application

Organizations engaged in production and trading of goods and services (hereinafter referred to as enterprises) conducting business transactions with related parties shall have the obligation to declare and determine their corporate income tax liabilities in Vietnam.

Article 2. Scope of Application

Transactions involving purchase, sale, exchange, lease, sublease, transfer, or assignment of goods and services during the course of business operations (collectively referred to as business transactions) between related parties, except for business transactions between enterprises in Vietnam and related parties concerning products subject to state pricing, shall be carried out in accordance with the laws on pricing.

Article 3. Explanation of Terms

1. "Market pricerefers to the price of the product agreed upon objectively in business transactions on the market between independent parties (parties not related).

2. "Productrefers collectively to goods and services which are the objects of business transactions.

3. "Purchase Price", "selling pricerefers collectively to the price of the product in transactions involving purchase, sale, exchange, lease, sublease, transfer, or assignment.

4. “Related parties(hereinafter referred to as "related parties") refers to parties having a relationship falling under one of the following cases:

4.1. One party directly or indirectly participates in managing, controlling, contributing capital, or investing in the other party in any form;

4.2. Both parties directly or indirectly are managed, controlled, contributed capital to, or invested in by another party in any form;

4.3. Both parties directly or indirectly participate in managing, controlling, contributing capital to, or investing in another party in any form.

Generally, two enterprises in a tax period engaging in business transactions falling under one of the following situations shall be considered related parties:

a) One enterprise directly or indirectly holds at least 20% of the ownership capital of the other enterprise;

b) Both enterprises each hold at least 20% of the ownership capital of the other enterprise directly or indirectly held by a third party;

c) Both enterprises each directly or indirectly hold at least 20% of the ownership capital of a third party;

d) One enterprise is the largest shareholder regarding ownership capital of the other enterprise, directly or indirectly holding at least 10% of the ownership capital of the other enterprise;

e) One enterprise guarantees or lends funds to another enterprise in any form, provided that the loan amount is at least 20% of the ownership capital of the borrowing enterprise and constitutes more than 50% of the total value of the borrowing enterprise's medium and long-term debts;

f) One enterprise designates members of the management or supervisory board of another enterprise, provided that the number of members designated by the first enterprise constitutes more than 50% of the total number of members of the management or supervisory board of the second enterprise; or a member designated by the first enterprise has the authority to decide financial policies or business operations of the second enterprise;

g) Two enterprises both have over 50% of the members of the management board or both have a member of the management board who has the authority to decide financial policies or business operations designated by a third party;

h) Two enterprises are managed or controlled in terms of personnel, finance, and business operations by individuals belonging to one of the following relationships: husband and wife; father, mother, and child (regardless of whether they are biological, adopted, or in-law children); brother, sister, or sibling with the same parents (regardless of whether they are biological or adopted parents); grandfather, grandmother, and grandson; grandfather, grandmother, and granddaughter; aunt, uncle, cousin, and nephew or niece;

i) Two enterprises have a head office and permanent establishment relationship or both are permanent establishments of foreign organizations or individuals;

j) One enterprise produces or trades products using intangible assets or intellectual property rights of another enterprise, provided that the cost paid for using such intangible assets or intellectual property rights constitutes more than 50% of the product's cost (or production cost);

k) One enterprise directly or indirectly supplies more than 50% of the total value of raw materials, supplies, or input products (excluding depreciation costs for fixed assets) for the production and trading activities of another enterprise;

l) One enterprise directly or indirectly controls more than 50% of the sales volume of another enterprise's products (by product type);

m) Two enterprises have a business cooperation agreement based on a contract.

5. "Related-party transactionrefers to a business transaction between related parties.

6. "Independent transactionrefers to a business transaction between non-related parties.

7. “Significant differencerefers to differences in information or data that increase or decrease the unit price of the transaction product by at least 1%, or differences in information or data that increase or decrease the gross profit margin or return on investment by at least 0.5%.

Example 1: Enterprise V is a wholly foreign-owned enterprise in Province X, Vietnam, has two transactions:

(i) Selling 2,000 products to an independent enterprise A at a selling price equal to the full cost (Z) plus (+) 6% of Z, with delivery conditions at Enterprise V;

(ii) Sell 2,000 products to the parent company at a selling price of Z + 6% Z, with delivery terms at country H being CIF, transportation and insurance costs from province X to country H amounting to 3% Z. At the same time, the parent company agrees to guarantee the business V's loan from bank N. In reality, this credit guarantee is unsecured (meaning no guarantee fee is paid).

In the transactions above:

- The difference in delivery terms related to transportation and insurance costs from province X to country H, which increases the selling price by more than 1%, constitutes a material difference.

- The difference in unsecured credit guarantee without payment does not constitute a material difference.

8. “Market price range” refers to a set of values for prices or a set of values for gross profit margins or a set of values for return on sales of the product determined from independent transactions selected for comparison.

9. “Tax authority database” includes information and data related to determining the tax obligations of businesses collected, analyzed, stored, updated, and managed by the tax authority from various sources.

Part B.

GUIDELINES FOR DETERMINING MARKET PRICES IN RELATED PARTY TRANSACTIONS

The product price in related party transactions stipulated in this Circular shall be determined based on market prices through a comparability analysis between related party transactions and independent transactions (hereinafter referred to as "comparability analysis") to select the most appropriate pricing method.

Article 4. Comparability Analysis

1. Principles

1.1. Comparison between related party transactions and independent transactions means comparing related party transactions with independent transactions or comparing the enterprises conducting related party transactions with those conducting independent transactions. The comparison is conducted based on selecting and analyzing relevant data, documents, and materials concerning independent and related party transactions occurring during the same period to ensure reliability for purposes of declaration and taxation consistent with accounting, statistical, and tax laws.

Example 2: Enterprise A is a subsidiary of multinational corporation H, and enterprise B is an independent business also engaged in retail motorcycle sales of brand HX in year 2xxx. The comparison can be carried out in one of the following two ways:

- Comparing the transaction of purchasing motorcycles for resale by enterprise A with a similar transaction by enterprise B.

- Comparing the retail motorcycle business activities of enterprise A with those of enterprise B.

1.2. Independent transactions chosen for comparison are selected from independent transactions that have equivalent characteristics and transaction context (hereinafter referred to as "transaction conditions") to related party transactions. In such cases, the product prices in these selected independent transactions serve as the basis for determining the product prices in related party transactions according to the pricing methods prescribed in Article 5, Part B of this Circular.

1.3. When comparing related party transactions with independent transactions, the transaction conditions between related party transactions and selected independent transactions do not necessarily have to be identical but must ensure comparability, without significant differences affecting the product price. If there are significant differences in transaction conditions between related party transactions and independent transactions, the enterprise must reflect these significant differences in monetary value as the basis for adjustment and exclusion of significant differences. Determining comparability when comparing related party transactions and independent transactions, and excluding differences are regulated in Clause 2, Article 4, Part B of this Circular.

1.4. Comparisons between related party transactions and independent transactions are carried out on a transaction-by-transaction basis for each type of product separately. However, in cases where transactions cannot be separated or separating transactions by product type is not suitable for business practice, the enterprise may combine multiple transactions below into one transaction:

1.4.1. Transactions closely related and interdependent, such as transactions based on contracts for supply of goods and services, where the service is an inseparable part of the goods supply contract; sequential transactions like providing or granting the right to use intangible assets together with supplying raw materials, semi-finished products for production and processing into finished products;

1.4.2. Transactions involving products produced through the same process using the same primary raw materials or belonging to the same group or category according to the classification criteria for goods and services specified in the Statistical Goods and Services Catalogue issued by the competent state management agency when conducting functional activity comparison analysis;

Example 3: Trading enterprise A imports three items X, Y, Z from a related party abroad for distribution to domestic supermarkets. These three items all belong to the household thermal equipment product category (according to Vietnam's statistical standards).

In cases where separating transactions by individual product types X, Y, Z is not suitable for business practice, enterprise A may combine the transaction values of importing these three types of products to apply the most appropriate pricing method.

1.4.3. Small-scale transactions where combining them forms a complete transaction;

1.4.4. Independent and related party transactions conducted by a single enterprise that cannot reasonably allocate revenue or expenses to each type of transaction. In such cases, the combined transaction is considered a related party transaction, and the price level of the products in the combined transaction will be the highest price of one of the related products (if it is a sale transaction) or the lowest price of one of the related products (if it is a purchase transaction).

Example 4: Enterprise A has two contracts:

(i) Contract 1: Providing quality monitoring services to a related party, company B;

(ii) Contract 2: providing quality monitoring services and patent usage licensing to independent company C, wherein the revenue from patent usage licensing exceeds the revenue from quality monitoring services by five times the unit price of the product.

Assumption: The quality monitoring services under Contracts 1 and 2 are sufficiently comparable to each other.

Comparative analysis:

- In the case where enterprise A does not separately account for revenue (or costs) related to the implementation of these two contracts (including three separate transactions regarding two types of products), all of enterprise A's revenue will be considered as revenue from related party transactions, and depending on the provisions of each method of determining market prices set forth in this Circular, the enterprise must re-determine the revenue corresponding to the highest price of the product, which is the copyright.

- In the case where enterprise A separately accounts for revenue (or costs) related to the implementation of these two contracts, the price of Contract 1 will correspond to the price of the service provided under Contract 2.

1.5. When selecting independent transactions for comparison, enterprises prioritize choosing independent transactions of the enterprise itself, provided that such independent transactions are not created or rearranged from related party transactions.

Example 5: Company M established a production enterprise A in Vietnam. Enterprise A has two transactions:

(i) Selling 2,000 products to independent customer A1 at 10,000 VND per product according to a contract directly negotiated and signed by enterprise A under normal business conditions;

(ii) Selling 2,000 products to independent customer M1 at 0.4 USD per product according to a contract directly negotiated and signed by parent company M with customer M1, who designated enterprise A to deliver the goods to customer M1. Payment for sales is made either directly by company M or by customer M1 to enterprise A.

Comparative analysis:

- Transaction (i) is an independent transaction of enterprise A itself;

- Transaction (ii) is not considered an independent transaction of enterprise A because although the products are dispatched from enterprise A to customer M1, who are non-related parties, there is involvement and control by the parent company in negotiating, signing the contract, and payment.

1.6. The minimum number of independent transactions selected for comparison after comparative analysis and adjustment of significant differences is carried out as follows:

1.6.1. One transaction - in cases where independent transactions and related party transactions have no significant differences;

1.6.2. Three transactions - in cases where independent transactions and related party transactions have differences but the enterprise has sufficient information and data to exclude all significant differences;

1.6.3. Four transactions - in cases where independent transactions and related party transactions have differences but the enterprise only has information and data to exclude most significant differences. In this case, further exclusion of significant differences will be conducted according to the guidelines on standard market price range at Point 1.2 Clause 1 Article 5 Part B of this Circular.

This provision is not mandatory in cases where the enterprise applies the profit split method, the first calculation method guided at Subsection 2.5.2.1 Point 2.5 Clause 2 Article 5 Part B of this Circular.

1.7. In cases where the enterprise cannot select independent transactions for comparison according to the principles from Points 1.1 to 1.6 Clause 1 Article 5 Part B of this Circular due to the unique and specific nature of the related party transaction, the enterprise must explain the reasons and follow the guidelines at Article 6 Part B of this Circular.

2. Comparative analysis and elimination of differences

2.1. When comparing between selected independent transactions and related party transactions, enterprises must conduct an analysis and evaluate influencing factors and adjust significant differences (if any) to clarify comparability based on four influencing criteria as follows (hereinafter referred to as the four influencing criteria):

2.1.1. Product characteristics: including main characteristics affecting the price of the product. Factors reflecting product characteristics mainly include:

a) Type of product (describing the nature of the product as tangible goods, copyrights, trade secrets or services...) and physical characteristics of the product (constituent materials, mechanical, physical, chemical properties...);

b) Quality, trademark of the product;

c) Nature of product transfer (for example: purchase, sale with or without conditions such as exclusive distribution rights, license, brand franchising...).

Example 6: Enterprise A is an independent enterprise specializing in producing various types of cotton towels (100% cotton fibers), including type A towel size 120 cm x 60 cm.

Company M is a wholly foreign-owned subsidiary in Vietnam specializing in producing various types of cotton towels (100% cotton fibers), including type A towel size 121 cm x 60 cm for export to its parent company abroad.

Assumption: Other factors reflecting the characteristics of both types of towels produced by enterprises A and M are equivalent.

Comparative analysis:

The towels produced by enterprise A and company M are considered products with equivalent product characteristics (the difference of 1 cm in length is insignificant).

2.1.2. Business functions of the enterprise: including factors reflecting profitability from activities undertaken by the enterprise in connection with the use of related assets, capital, and costs. When analyzing business functions (hereinafter referred to as "function"), the enterprise must reflect the main functions in relation to the use of different types of assets, capital, costs, as well as risks associated with investment in those assets, capital, and costs, with respect to the profit-making activities related to the business transaction. Main functions of the enterprise primarily include:

a) Research and development;

b) Design, sample product creation;

c) Production, manufacturing, processing;

d) Assembly, installation of equipment;

e) Distribution, circulation, marketing, advertising;

f) Management, supply of materials;

g) Transportation, warehousing, storage service provision;

h) Perform services in professions such as brokerage, consulting, training, accounting, auditing, human resources management, labor supply, and information collection.

Example 7 (a): Company N (a related party in Vietnam of multinational company X) in year 200x had the following information:

- Conducted production of new drugs on production lines invested by the company, pursuant to copyrights provided by a company within group X.

- Sold (exported) to company X under stable contracts signed at the beginning of the year;

- Did not conduct any research and development of products.

When comparing related-party transactions (with company X) and arm's length transactions, company N must perform a functional analysis with an independent enterprise having similar functions to company N to eliminate differences. Since the field of producing new drugs is usually associated with research and development activities, if the selected independent enterprise has research and development functions, company N must eliminate this difference.

Example 7 (b): Following Example 7 (a) above, assume that company N, in addition to conducting production and business operations of new drugs, also performs import agency and distribution services for parent company X in Vietnam.

The agency activity is an additional function that company N has undertaken, incurring costs and bearing risks of the agency service industry. This activity is a related-party transaction of company N. In this case, company N must determine and declare commission revenue from agency activities according to the market price determination methods stipulated in Clause 2, Article 5, Part B of this Circular.

Example 8: Company M is a multinational company abroad that conducts wholesale sales of mobile phone T meeting international quality standards registered in Vietnam to company A, a related party, and company B, an independent company.

Company A distributes mobile phone T retail, issues warranty cards for each phone sold, and directly provides warranty services.

Company B distributes mobile phone T retail, issues warranty cards for each phone sold but does not provide warranty services, instead agreeing to pay company A $5 for each phone repaired by company A during the warranty period.

When comparing related-party transactions (between A and M) with arm's length transactions (between B and M), company A must analyze the functions between company A and company B and eliminate differences:

- The operational functions of the two companies differ in terms of providing warranty services, where company A performs more functions, uses more resources, and has greater profit potential than company B.

- Company A must adjust its product warranty function by excluding actual costs and revenues related to the provision of warranty services by company A.

- If the warranty function only occurs occasionally with insignificant cost and revenue values (i.e., immaterial), there is no need to make this adjustment.

2.1.3. Contractual conditions when performing transactions: include provisions or agreements regarding the responsibilities and rights of the parties involved in the business transaction. Contractual conditions when performing transactions (hereinafter referred to as "contractual conditions") mainly include:

a) Quantity, conditions for delivery or distribution of products;

b) Timeframe, conditions, and payment methods;

c) Warranty conditions, replacement, upgrade, modification, or adjustment of products;

d) Conditions concerning exclusive business rights or product distribution;

e) Other economic conditions affecting the transaction (for example: support services, quality inspection advisory services, usage guidance, advertising support, promotional activities...).

In all cases (whether or not there is a written contract), the basis for determining contractual conditions is actual events or financial data reflecting the nature of the transaction.

2.1.4. Economic conditions when the transaction takes place: include factors about the economic conditions in the market at the time of the transaction affecting the product price. Economic conditions when the transaction takes place (hereinafter referred to as "economic conditions") mainly include:

a) Scale and geographical location of the production or consumption market for the product;

b) Time and nature of the transaction's operation on the market (for example: the transaction belongs to ordinary wholesale, retail activities, exclusive distribution, market segmentation based on consumer groups);

c) Degree of competition for the product in the market;

d) Economic factors affecting production and business costs arising at the transaction location (for example: taxes, fees, financial incentives);

e) Government market regulation policies.

2.2. Priority order when analyzing the four influencing criteria mentioned in Sections from 2.1.1 to 2.1.4 Point 2.1 Clause 2 Article 4 Part B of this Circular is specifically defined for each pricing method mentioned in Article 5 Part B of this Circular. During the analysis process, for priority criteria, detailed analysis must be performed; for supplementary criteria, detailed analysis may not be required but must ensure sufficient reflection of the basic characteristics of the criterion.

Example 9: Assuming Company M Vietnam (a subsidiary of International Company M) specializes in trading one type of product X meeting Class I quality standards registered in Vietnam. In year 200x, the company selected an independent transaction A (between Company M Vietnam and an independent party) as a basis for comparison with related-party transaction B (between Company M Vietnam and International Company M), and both transactions have a unit selling price of 3 USD.

In this case, the analysis of the four influencing criteria of transactions A and B is carried out as follows:

(i) Product characteristics: identical (as they are both products produced by Company M Vietnam);

(ii) Operational functions: identical (both are conducted by Company M Vietnam);

(iii) Contract conditions: Assuming that these criteria of the two transactions are identical except for the delivery condition in transaction A, which is at the warehouse of Company M Vietnam; in transaction B, delivery is at port X in country Y, and the transportation cost from Vietnam to country Y is 0.5 USD per product, which is the responsibility of Company M Vietnam for payment.

(iv) Economic conditions: Assuming that this criterion does not affect the product price (for example: country Y does not have a price control policy for the business of product X, all sales conditions are wholesale sales, import duties and import procedures for product X in country Y are borne by the buyer).

Thus, when comparing prices, it shows that in transaction B, the price has not been adjusted to be equivalent to transaction A (the difference is 0.5 USD per product).

At that time, Company M Vietnam selects the most appropriate pricing method to ensure that the declaration and taxation of revenue from selling product X in transaction B is equivalent to 3.5 USD per product (instead of the old unit price of 3 USD).

2.3. After analyzing and comparing, the enterprise determines significant differences in transaction conditions between related-party transactions and independent transactions. In cases where there are no significant differences, there is no need to implement the provisions of Point 2.4 Clause 2 Article 4 Part B Circular.

2.4. In cases where there are significant differences, the enterprise must determine the monetary value of those significant differences to adjust, depending on each specific case, the price may increase or decrease to eliminate those significant differences.

In cases where there are significant differences in the functions of enterprises, adjustments shall be made according to the following principles:

a) If costs or revenues related to significant functional differences are recorded separately, adjustments shall be made based on each individual revenue or cost related to those significant differences.

b) If costs or revenues related to significant functional differences are recorded collectively, adjustments shall be made based on allocation to determine the corresponding portion of costs or revenues related to those significant differences.

Example 10: Suppose there are two transactions of company A and company B, both companies performing garment processing services, where company A processes and delivers products at its own warehouse, while company B processes and handles export procedures for products to foreign countries.

Therefore, when comparing the processing function of A and B, it is seen that company B additionally performs the function of "exporting procedures." This difference will be separated either by recording separately or allocating according to the ratio of total costs or revenues generated from handling export procedures to ensure effective comparison of business performance based on the processing function of company A and company B being equivalent.

In cases where company B only performs the "exporting procedures" function occasionally at the request of customers with insignificant costs or revenues (i.e., not significant), there is no need to make adjustments for this difference.

Article 5. Methods for Determining Market Price

The methods for determining the market price of products in related-party transactions are specifically provided in Clause 2 Article 5 Part B Circular, including:

- Comparative transaction price method;

- Resale price method;

- Cost plus profit method;

- Profit comparison method;

- Profit split method.

Depending on each specific method mentioned above, the market price of the product can be directly calculated as a unit price or indirectly through gross margin ratios or return on sales ratios of the product. However, for indirect pricing methods, when determining business results for tax declaration purposes, it is not necessary to calculate a specific unit price.

1. Principles for Applying Market Price Determination Methods

1.1. The most appropriate pricing method is the method chosen among the five methods mentioned above, which is suitable for transaction conditions and has the fullest and most reliable information, data, and figures for comparative analysis.

1.2. Enterprises select an appropriate value within the range of standard market price margins to serve as the basis for adjusting the corresponding value of related-party transactions. In cases where the product price in related-party transactions differs from the most appropriate value but does not reduce taxable income, the enterprise does not need to make adjustments.

1.2.1. The most appropriate value reflects the highest degree of equivalence regarding transaction conditions of independent transactions selected for comparison with related-party transactions.

1.2.2. Standard market price range is:

a) Values within the range of values calculated from independent transactions selected for comparison as specified in Subpoint 1.6.1 and Subpoint 1.6.2 Point 1.6 Clause 1 Article 4 Part B Circular;

b) Values within the first quartile to third quartile range of the quartile probability calculation, or values within the 25th percentile to 75th percentile range of the percentile probability calculation derived from the market price range of independent transactions selected for comparison as specified in Subpoint 1.6.3 Point 1.6 Clause 1 Article 4 Part B Circular (See Appendix 2-GCN/CC- Part C on how to calculate quartiles and percentiles).

Example 11: Enterprise V in Vietnam has some information:

- It is a subsidiary specializing in producing and processing products for the parent company and must pay copyright fees annually to another subsidiary in the group at a rate of N%/year based on net revenue, with periodic payments four times a year.

- Enterprise V selects 13 independent transactions for comparison, with the percentage of copyright fees on net revenue for these transactions being: 1; 1.25; 1.25; 1.5; 1.5; 1.75; 2; 2; 2; 2.25; 2.5; 2.75; 3.

- Comparative analysis shows that significant differences have been reasonably adjusted to eliminate them, except for payment terms, which may affect the value of copyright fees but there is insufficient information to convert into monetary value for adjustment.

- The enterprise applies the statistical quartile method, selects the first and third quartiles to determine the standard range as 1.5—2.25; the median number is the second quartile of the standard range with a value of 2.

Adjusting declared data:

- In the case where the ratio of copyright cost to the enterprise V's net revenue is 2.1%, enterprise V does not need to adjust the declared data on deductible copyright costs for corporate income tax purposes.

- In the case where the ratio of copyright cost to the enterprise V's net revenue is 4%, and enterprise V considers that the transaction with a copyright ratio of 2% has the most similar transaction conditions to its own transactions, enterprise V must adjust the declared data on deductible copyright costs for corporate income tax purposes according to a rate of 2% of net revenue.

1.3. In cases where enterprises have applied market price determination methods as stipulated in this Circular but experience unforeseeable changes such as natural disasters, fires, explosions affecting production and business operations or prices influenced by state policies and regulatory measures during the year, enterprises are allowed to adjust prices for products affected based on actual circumstances.

2. Methods for Determining Market Prices

2.1. Comparative Method Based on Independent Transaction Prices

2.1.1. The comparative method based on independent transaction prices uses the unit price of products in independent transactions to determine the unit price of products in related party transactions when these transactions have equivalent transaction conditions.

2.1.2. The product unit price of related party transactions is compared with the most appropriate value within the standard market price range based on the product unit price to adjust in accordance with the principles set out in Point 1.2, Clause 1, Article 5, Part B of this Circular.

2.1.3. For this method, when analyzing four influencing factors as guided in Article 4, Part B of this Circular, the priority factor is the product characteristics and contract terms, while supplementary factors are economic conditions and the function of the enterprise.

2.1.4. The comparative method based on independent transaction prices is applied under one of the following conditions:

a) There is no significant difference in transaction conditions when comparing independent transactions and related party transactions that significantly affect the product price;

b) In cases where there are significant differences affecting the product price, but these differences have been eliminated according to the guidelines provided in Article 4, Part B of this Circular.

2.1.5. Significant factors affecting the product price include:

a) Physical characteristics, quality, and brand of the product;

b) Contract terms regarding the supply and transfer of the product, such as quantity (if it affects the price level), delivery period, payment period, etc.;

c) Rights to distribute and consume the product that affect economic value;

d) The market where the transaction takes place.

2.1.6. The comparative method based on independent transaction prices is typically applied in the following situations:

a) Individual transactions involving specific types of goods circulating in the market;

b) Individual transactions involving specific service types, copyrights, loan agreements;

c) Businesses conducting both independent and related party transactions involving the same type of product.

Example 12: Company V in Vietnam is a wholly-owned foreign company S operating in garment manufacturing. In the year 200x, Company V had two transactions for processing men's trousers with code cat.347 as follows:

- Transaction 1: Processing for Company S 1,000 sets of trousers at $60/set under the condition of delivery at port X, Vietnam (Company S will be responsible for export).

- Transaction 2: Processing for Company M from country N 1,000 sets of trousers at $100/set under the condition of delivery at city Y, country N.

Assumption:

- Company M is a company with no related party relationship with Company V and Company S.

- The two transactions mentioned above are equivalent in transaction conditions except for the significant difference being the shipping and insurance costs for sending goods from port X to city Y, country N, which is $3/set.

Comparative analysis:

- When comparing Transaction 1 (related party transaction) with Transaction 2 (independent transaction), it shows that Transaction 1 does not reflect the market price accurately. In this case, the revenue from the transaction with Company S is recalculated as follows:

($100 - $3) x 1,000 = $97,000.

- Company V must declare the processing revenue received from Company S as $97,000 instead of $60,000.

2.2. Resale Price Method

2.2.1. The resale price method determines the purchase price of a product from a related party based on the resale price (or selling price) of the product sold by the enterprise to an independent party.

2.2.2. The purchase price of the product from the related party is determined based on the resale price of the product in independent transactions minus gross profit minus other costs included in the purchase price (if any) (for example: import tax, customs fees, insurance, international transportation costs).

2.2.2.1. Gross profit is calculated based on the gross profit margin on the resale price (net sales) and the resale price (net sales), reflecting the value the enterprise receives to cover operating costs and achieve a reasonable profit.

The gross profit margin on the resale price (net sales) is determined by the difference between the resale price (net sales) and the cost of the purchased product divided by the resale price (net sales).

2.2.2.2. In cases where the enterprise functions as a distributor without ownership of the product and earns commission based on a percentage of the product's resale price, that percentage is considered the gross profit margin on the resale price (net sales).

(See Appendix 2-GCN/CC- Part B.1 for the formula to determine the market price according to the resale price method).

2.2.3. The gross profit margin on the resale price (net sales) of related party transactions is compared with the most appropriate value within the standard market price range based on the gross profit margin to adjust in accordance with the principles set out in Point 1.2, Clause 1, Article 5, Part B of this Circular.

2.2.4. For this method, when comparing the four influencing criteria according to the guidance provided in Article 4 Part B of this Circular, the priority criterion is the business function of the enterprise, while the supplementary criteria are contractual conditions, product characteristics, and economic conditions.

2.2.5. The resale price method shall be applied under one of the following conditions:

a) There is no significant difference in transaction conditions when comparing independent transactions with related party transactions that affect the gross profit margin on sales (net revenue);

b) In cases where there are significant differences affecting the gross profit margin on sales (net revenue), but these differences have been eliminated according to the guidance provided in Article 4 Part B of this Circular.

2.2.6. Significant factors affecting the gross profit margin on sales (net revenue) include:

a) Costs reflecting the functions of the enterprise (for example: exclusive distribution agency, implementing advertising, promotional, warranty programs...);

b) Types, scale, volume, turnover time of products purchased for resale, and nature of market activities (for example: wholesale, retail...);

c) Accounting methods (meaning that the components constituting the gross profit and revenue of related party transactions and independent transactions must be equivalent or uniformly apply accounting standards).

2.2.7. The resale price method is typically applied to transactions involving simple service provision and trade distribution products with short turnover times from purchase to sale, less subject to seasonal fluctuations. At the same time, the products before being sold do not go through processing, manufacturing, assembly, changing the nature of the product, or attaching a trademark to significantly increase the value of the product.

Example 13: Enterprise V in Vietnam is a related party of Foreign Company H engaged in distribution of watch products supplied by Company H, with the following information: - In year 200x, Company H delivered 1,000 watches to Enterprise V and required Enterprise V to pay $330,000 (including CIF price + import taxes and fees paid by Company H).

- By the end of year 200x, Enterprise V's net revenue from selling all these watches to consumers in Vietnam was converted to $400,000.

- Enterprise T is an independent enterprise in Vietnam engaged in watch distribution. In year 200x, Enterprise T's gross profit margin reached 20%.

Assuming Enterprise T meets the conditions to be selected for comparison of gross profit margins with Enterprise V, then Enterprise V will declare a reasonable cost deduction for purchasing watches from Company H as follows:

[$400,000 - ($400,000 x 20%)] = $320,000

Enterprise V can only deduct a reasonable cost for the cost of goods sold at $320,000 instead of $330,000.

If Company H provides sales advisory services and requires Enterprise V to pay for these costs (recorded as selling expenses), then this transaction must be separated and one of the pricing methods specified in this Circular must be applied to determine the reasonable cost deduction for the sales advisory service.

2.3. Cost plus profit method

2.3.1. The cost plus profit method is based on the cost (or production cost) of the product purchased from an independent entity to determine the selling price of the product to a related party.

2.3.2. The selling price of the product to the related party is determined by adding the cost (or production cost) of the product to the gross profit.

2.3.2.1. Gross profit is calculated based on the gross profit margin on cost (or production cost) of the product sold and the cost (or production cost) of the product sold, reflecting a reasonable profit level corresponding to the business function of the enterprise and market conditions.

The gross profit margin on cost (or production cost) is determined by dividing the difference between net revenue and cost (or production cost) of the product sold by the cost (or production cost). The cost (or production cost) of the product sold includes direct and indirect production costs and does not include financial activity costs such as copyright fees, interest expenses, etc.

In cases where the enterprise cannot separately account for the cost (or production cost) of the product sold, selling expenses, and general administrative expenses, the cost (or production cost) of the product sold used as the basis for calculating gross profit will include all these expenses.

2.3.2.2. In cases where the enterprise has the function of purchasing products without ownership rights and receives commission based on a percentage of the purchase cost, that percentage is considered the gross profit margin on cost.

(See Appendix 2-GCN/CC, Part B.2 regarding the formula for determining the market price using the cost plus profit method).

2.3.3. The gross profit margin on cost (or production cost) of related party transactions is compared with the most appropriate value within the standard market price range according to the gross profit margin on cost (or production cost) to adjust in accordance with the principles stipulated in Point 1.2 Clause 1 Article 5 Part B of this Circular.

2.3.4. For this method, when analyzing the comparison of the four influencing criteria according to the guidance provided in Article 4 Part B of this Circular, the priority criterion is the business function of the enterprise, while the supplementary criteria are contractual conditions, product characteristics, and economic conditions.

2.3.5. The cost plus profit method shall be applied under one of the following conditions:

a) There is no significant difference in transaction conditions when comparing independent transactions with related party transactions that affect the gross profit margin on cost (or production cost);

b) In cases where there are significant differences affecting the gross profit margin on cost (or production cost), but these differences have been eliminated according to the guidance provided in Article 4 Part B of this Circular.

2.3.6. Significant factors affecting the gross profit margin on cost (or production cost) usually include:

2.3.6. The significant factors affecting the gross profit margin on cost (or production cost) usually include:

a) Costs reflecting the functional activities of the enterprise (for example: production under contract, research and development of new products, the proportion of added value of the product compared to the scale of business investment);

b) Contractual obligations (for example: delivery deadlines for products, quality control costs, storage costs, payment conditions);

c) Accounting methods (that is, it must ensure that the elements constituting the cost of goods sold (or cost of sales) in related party transactions and independent transactions are equivalent or uniformly applied accounting standards);

2.3.7. The cost plus method is commonly applied in the following cases:

a) Transactions in the production, assembly, manufacturing, processing of products for sale to associated parties;

b) Transactions between associated parties implementing joint venture contracts, business cooperation contracts for production, assembly, manufacturing, processing of products, or agreements on the supply of input factors and marketing of output products;

c) Transactions involving the provision of services to associated parties.

Example 14: Enterprise A in Vietnam is a subsidiary of parent company T (country Y), undertaking shoe processing for export according to designs provided by company T. The parent company is responsible for providing raw materials, technical staff for quality inspection, transportation and international insurance costs. Enterprise A receives processing fees per unit of product and bears all incidental costs during the processing period. In 20xx, information about Enterprise A's processing activities is as follows:

- Net revenue (processing fee): 15 billion VND

- Cost of goods sold: 13 billion VND

- Selling expenses and management expenses: 1.8 billion VND.

Assumption:

- Some independent enterprises also engage in shoe processing for foreign organizations and individuals, with processing fees calculated based on: processing fee equals total cost (cost of goods sold + management expenses + selling expenses) plus 7% of total cost.

- Independent transactions of these enterprises meet the conditions to be selected for comparison with Enterprise A's transaction.

In this case, the revenue from shoe processing activities is recalculated as follows: (13 billion + 1.8 billion) + [7% x (13 billion + 1.8 billion)] = 15.836 billion VND.

Enterprise A must declare revenue as 15.836 billion VND instead of the previous figure of 15 billion VND.

2.3.8. The cost plus method can be applied to recalculate the cost (or cost of sales) of transactions with associated parties based on the market price of the product sold and the gross profit margin on cost (or cost of sales).

Example 15: Enterprise V in Vietnam is a wholly-owned subsidiary of multinational corporation P, specializing in the production of household cleaning agents. Input materials (soap blanks and other cleaning chemicals) are supplied by affiliate company Y. The consumption volume of Enterprise V in 200x was 100 tons, of which:

- Transaction 1: 60 tons were sold to another affiliate company within group P at FOB price of 650 USD/ton,

- Transaction 2: The remaining 40 tons were sold to domestic supermarkets at a price excluding VAT of 700 USD/ton.

The accounting records for the period show the following figures:

- Net revenue: 67,000 USD

- Total cost: 65,000 USD

Assumption:

- Transactions 1 and 2 meet the conditions for Enterprise V to apply the comparable uncontrolled price method.

- Data on the gross profit margin on total cost of independent enterprises operating in the household cleaning agent production industry is 15%.

Enterprise V declares revenue and costs for corporate income tax calculation as follows:

- Adjusting the selling price in the related party transaction to the selling price in the independent transaction:

700 USD x 60 tons = 42,000 USD

- Recalculating net revenue:

42,000 USD + 700 USD x 40 tons = 70,000 USD

- Adjusting total cost:

70,000 USD / (1 + 0.15) = 60,870 USD.

Therefore, Enterprise V will declare and pay taxes based on net revenue of 70,000 USD instead of the previous figure of 67,000 USD and total cost of 60,870 USD instead of the previous figure of 65,000 USD.

2.4. Profit Comparison Method

2.4.1. The profit comparison method is based on the profit margin of products in selected independent transactions as a basis for determining the profit margin of products in related party transactions when these transactions have equivalent transaction conditions.

2.4.2. Profit margins are calculated based on net income before corporate income tax on net revenue, costs, or assets of production and business operations in accordance with accounting regulations and financial statements. Net income before corporate income tax may be increased by interest expense or depreciation of fixed assets to determine the pre-payment efficiency of production and business operations. Commonly used profit margins include:

2.4.2.1. Net income margin before corporate income tax on net revenue from production and business operations.

Example 16: Enterprise L operates in the production and assembly of four-seat cars under brands N and S, where:

- Brand N is sold to independent parties.

- Brand S is sold entirely to Enterprise L1, a wholly-owned subsidiary of Enterprise L.

- All purchase transactions for the production and assembly of both car models are independent transactions.

In 200x, the accounting records of Enterprise L show the following figures:

+ Net revenue from the sale of brand N cars: 18,000 USD (an independent transaction)

+ Net profit before tax from the sale of brand N cars: 2,000 USD

+ Net revenue from the sale of brand S cars: 25,000 USD (a related party transaction)

+ Net profit before tax from the sale of brand S cars: 1,800 USD.

+ Enterprise L1 lends money to Enterprise L, and the interest calculated at market rates is 100 USD.

The net profit margin before corporate income tax on net revenue for brand N cars: 2,000/18,000 x 100% = 11.1%.

The net profit margin before corporate income tax on net revenue for car brand S: 1,800/25,000 x 100% = 7.2%

Assuming that the significant differences between the two transactions of selling cars N and S have been adjusted to ensure that the transaction with company L1 achieves a net profit margin before corporate income tax and interest expense on net revenue of 11.1%. In this case, the figures for the sale of car brand S will be recalculated as follows:

Total cost: 25,000 – 1,800 - 100 = 23,100 USD.

Net revenue: 23,100 / (1 – 0.111) = 25,984 USD.

Net profit before tax and interest expense: 25,984 – 23,100 = 2,884 USD

Net profit before tax: 2,884 – 100 = 2,784 USD

Company L must declare the net profit before corporate income tax from the transaction of selling car S as 2,784 USD instead of the old figure of 1,800 USD in the accounting records.

2.4.2.2. Net income margin before corporate income tax on total production and business expenses.

The net income margin before corporate income tax on total costs shall not be used for cases where costs arise from related party transactions, as such cost data falls within the scope of market price adjustment.

Example 17: Enterprise A is a subsidiary of enterprise B, acting as a service delivery agent for B, while enterprise C is an independent business specializing in service delivery (for multiple independent customers). The figures for revenue and costs of A and C are as follows:

Unit of measurement: thousand USD

	A	C
Value-added tax and other taxes (as applicable)	1.500	2.000
VND	1.650	2.500

Assuming C meets the conditions to be compared with A regarding the net income margin before corporate income tax on total costs.

- The net income margin before corporate income tax on total costs of A = (1,650 - 1,500): 1,500 = 10%

- The net income margin before corporate income tax on total costs of C = (2,500 - 2,000) : 2,000 = 25%

Enterprise A must declare its net income before corporate income tax from related party transactions according to the net income margin before corporate income tax on total costs corresponding to the 25% rate of enterprise C.

2.4.2.3. Net income margin before corporate income tax on assets of production and business activities.

This ratio is only used when the enterprise has a significant proportion of fixed assets in total investment (e.g., enterprises in manufacturing industries, mining sectors).

The asset value is the average of the beginning and end-of-period asset balances, including both fixed and current assets, excluding assets used for investment and joint venture activities (e.g., purchasing treasury bills, purchasing shares).

Example 18:

- N is a subsidiary in Vietnam of Group P specializing in rice wine production. The parent company provides most of the input factors and markets all of the output products. In year 200x, enterprise N had a net income margin before corporate income tax on assets of 3%.

- V is an independent company specializing in producing various beverages, including distilleries for rice wine, beer, and other carbonated drinks. In year 200x, company V had a net income margin before corporate income tax on total company assets of 7%, with a net income margin before corporate income tax on assets of the rice wine distillery at 7.5%.

Assuming V meets the conditions to be compared with N regarding the net income margin before corporate income tax on assets, then N will need to adjust taxable income according to the net income margin before corporate income tax on assets of 7.5%.

2.4.3. The enterprise selects one of the above profitability ratios to compare the profitability of related party transactions with the profitability of independent transactions and may use one or more additional profitability ratios specified under financial reporting regulations to supplement the verification of the accuracy of the selected profitability ratio. The selection of the profitability ratio based on net revenue, costs, or assets depends on the economic nature of the transaction. (See Appendix 2-GCN/CC, Part B.3 for formulas to calculate profitability ratios for applying the profit comparison method).

Example 19:

- If the enterprise has related party transactions in the sales phase, it does not use the net income margin before corporate income tax on net revenue because the revenue data from related party transactions falls within the scope of market price determination.

- If the enterprise provides services, it does not use the net income margin before corporate income tax on assets.

2.4.4. The profitability of related party transactions is compared with the most appropriate market price range to adjust in accordance with the principles stipulated in Point 1.2 Clause 1 Article 5 Part B of this Circular.

2.4.5. For this method, when analyzing the four influencing factors according to the guidelines set out in Article 4 Part B of this Circular, the priority factor is the operational function of the enterprise, the supplementary factors are contractual terms, product characteristics, and economic conditions.

2.4.6. The profit comparison method is applied under one of the following conditions:

There is no difference in transaction conditions when comparing independent transactions and related party transactions that significantly affect the profitability ratio;

In cases where there are significant differences affecting the profitability ratio but these differences have been eliminated according to the guidelines set out in Article 4 Part B of this Circular.

2.4.7. Significant factors affecting the profitability ratio include:

a) Factors related to assets, capital, and costs used to perform the main functions of the enterprise (e.g., production and processing based on machinery invested by the enterprise which can generate higher profits than production and processing based on machinery leased from another entity for processing);

b) Industry characteristics, product groups, and production or consumption stages (e.g., finished products made from raw materials or semi-finished products).

c) Accounting method and product cost structure (for example: products in a stage of faster depreciation compared to normal depreciation).

2.4.8. Profit comparison method is an extension of resale price method and cost plus method. Therefore, the profit comparison method is often widely applied in cases as mentioned in Sections 2.2.7 Point 2.2 and Section 2.3.7 Point 2.3 Clause 2 Article 5 Part B of this Circular.

2.5. Profit allocation method

2.5.1. The profit allocation method based on profits derived from a consolidated related party transaction to determine appropriate profits for each related party according to how independent parties would allocate profits in equivalent independent transactions.

A consolidated related party transaction involving multiple related parties is a unique, special transaction consisting of several closely related related party transactions concerning exclusive products or closed-loop related party transactions among associated parties.

2.5.2. The profit allocation method has two calculation methods:

2.5.2.1. The first calculation method: allocating profits to each related party based on contribution costs; accordingly, the profit of each participating related party in the transaction is determined based on the allocation of total profits derived from the consolidated related party transaction according to the actual ratio of its contribution costs in the related party transaction to the total actual costs incurred to produce the final product (See Appendix 2-GCN/CC, Part B.4 regarding the formula for profit allocation based on capital contribution ratio).

Example 20:

Company A in Vietnam and Company B abroad have the following information:

- Both companies are subsidiaries of Group T producing electronic products.

- Both companies participate in the production of a new liquid crystal display television product.

- A is responsible for designing, manufacturing the casing and backlighting to transfer to B for assembly with other parts (installation of circuit loops, electronic chips...) invented and produced by B. The finished liquid crystal display television is sold to C, an independent distributor, at a price of 550 USD.

- The total cost of the product transferred from A to B is 300 USD. B incurs additional production costs of 150 USD.

The profit allocated to A is calculated as follows:

[(550 - (300 + 150)) / 450] x 300 = 66.66 USD

2.5.2.2. The second calculation method: dividing profits into two steps as follows:

2.5.2.2.1. Step one: dividing basic profit: each participating company in the related party transaction receives a corresponding basic profit portion reflecting the profit value of the consolidated related party transaction it obtains due to performing its functional activities without considering specific and unique factors (such as exclusive ownership or use of intangible assets or intellectual property rights).

Basic profit is calculated according to the gross margin rate or return on investment corresponding to the most appropriate market standard price range according to the gross margin rate or return on investment as provided in Points 2.2, 2.3, 2.4 Clause 2 Article 5 Part B of this Circular.

2.5.2.2.2. Step two: dividing surplus profit: each participating company in the related party transaction receives an additional surplus profit portion corresponding to its ratio of contribution to the total surplus profit (that is, the total profit minus the total basic profit already divided in the first step) of the consolidated related party transaction. This surplus profit reflects the profit obtained by the company beyond the basic profit due to specific and unique factors.

Part on supernormal profit of each enterprise shall be calculated by multiplying the total supernormal profit obtained from consolidated related party transactions with (x) the contribution ratio of the following costs or assets of each enterprise:

a) Research and development costs;

b) The value (after depreciation) of intangible assets or intellectual property rights used for producing and trading products.

Research and development costs, the value of intangible assets, and intellectual property rights must be determined based on market price (according to the methods prescribed in this Circular) or actual costs contributed by each party in accordance with accounting principles for costs or assets.

Example 21: Company H and M are two companies within the same group manufacturing mobile phones, where H manufactures component parts and M assembles and installs complete software for sale to independent distributors. The accounting data of enterprises H and M related to related party transactions concerning mobile phone production are as follows:

Unit of measurement: thousand USD

Index	H	Briefly describe technical improvements, production processes, raw materials, designs; new technology applications such as automation, digitalization, clean technology; management, marketing, distribution solutions; products winning awards or certifications related to innovation…):…
Net Sales Revenue	200	500
Cost of goods sold includes:
- Purchase cost of raw materials	100	200
- Production costs	50	150
Research and development (R&D) costs	30	50
Selling and general administrative expenses	10	50
Profit	10	50

Calculation of profit for H and M using the profit split method:

Step 1: Allocate basic profit

- Recalculate the consolidated financial results report:

Unit of measurement: thousand USD

Index	Amount
Net Sales Revenue	500
Cost of Goods Sold	300
Research and development (R&D) costs	80
Selling and general administrative expenses	60
Profit	60

- Assuming that the gross profit margin on cost according to market value for H is 10% and for M is 8%, as guided in Section 2.3, Article 5, Part B of this Circular.

- Calculate the profit of H and M using the formula:

Profit = Gross profit margin x Cost

Total cost = Cost of goods sold + R&D costs + selling and general administrative expenses

+ Profit of H = 10% x (100 + 50 + 30 + 10) = 19 thousand USD

+ Profit of M = 8% x (300 + 80 + 60 - 190) = 20 thousand USD

Supernormal profit after allocating basic profit: 60 - 19 - 20 = 21 thousand USD

Step 2: Allocate supernormal profit based on the contribution ratio of R&D costs

- Calculate the contribution ratio of R&D costs of each party:

+ H = 30 / 80 x 100% = 37.5%

+ M = 100% - 37.5% = 62.5%

- Calculate the supernormal profit portion of H and M:

+ H: 21 x 37.5% = 8.87 thousand USD

+ M: 21 - 8.87 = 12.13 thousand USD

Conclusion:

- H declares the profit obtained from related party transactions as: 19 + 8.87 = 27.87 thousand USD instead of the old figure of 10 thousand USD;

- M declares the profit obtained from related party transactions as: 20 + 12.13 = 32.13 thousand USD instead of the old figure of 50 thousand USD.

2.5.3. For this method, when analyzing and comparing the four influencing criteria as guided in Article 4, Part B of this Circular and the application conditions are carried out according to the provisions applicable to the resale price method, cost plus method, or comparable profits method, depending on the appropriate circumstances as guided in Subsection 2.5.2.2.1, Point 2, Clause 2, Article 5, Part B of this Circular.

2.5.4. The profit split method is typically applied in cases where related parties jointly participate in research and development of new products or develop exclusive intangible assets, or in transactions within the production and distribution process between related parties from raw materials to final products for circulation, associated with the ownership or use of unique intellectual property rights.

Article 6. Provisions on determining market price for certain special cases

In cases where due to the unique nature or singularity of related party transactions, enterprises cannot select independent transactions for comparison according to the guidelines set out in Points 1.1 to 1.6 Clause 1 Article 4 Part B of this Circular and the methods of determining market prices stipulated in Article 5 Part B of this Circular, the enterprise must explain the reasons (including information about its business activities) and implement one of the following measures:

1. Comprehensive Measure

1.1. Expand the scope of selecting independent transactions (or enterprises) to other national economic sectors (according to the National Economic Industry Classification issued by the competent state management agency) different from the sector in which the enterprise operates for comparison with the condition that enterprises conducting these independent transactions have equivalent operational functions to the enterprise; conduct an analysis of four influencing factors and exclude significant differences based on the economic criteria used in the sector to reflect objectively the investment business efficiency, economic growth, or value added of products. The number of independent transactions or independent enterprises selected for comparison shall be at least 5 (five).

1.2. Determine the standard market price range according to the calculation methods of the most suitable pricing method prescribed in Article 5 Part B of this Circular; use the statistical quartile function or the statistical percentile function to determine the standard market price range and the appropriate median value derived from the standard market price range. (See Appendix 2-GCN/CC, Part C. Calculation of Quartiles and Percentiles to Determine the Standard Market Price Range).

1.3. In cases where the selling price of the product, gross profit margin, or return on sales in the related party transaction is not lower than the median value within the standard market price range or the purchase price of the product in the related party transaction is not higher than this median value, the enterprise does not need to adjust the related party transaction. In cases where the selling price of the product, gross profit margin, or return on sales in the related party transaction is lower than this median value or the purchase price of the product in the related party transaction is higher than this median value, the enterprise shall make adjustments according to the most appropriate value within the standard market price range but not lower than the median value reflecting the selling price, gross profit margin, or return on sales correspondingly or not higher than the median value reflecting the purchase price correspondingly.

1.4. Depending on each case, the enterprise uses a combination of pricing methods prescribed in Article 5 Part B of this Circular (see Example 15) or applies two pricing methods simultaneously to supplement the verification of the accuracy and objectivity of the price, gross profit margin, or return on sales of the product in the related party transaction.

1.5. Specifically for the profit split method, the second calculation method, the guidelines set out in Points 1.1 to 1.3 Clause 1 Article 6 Part B of this Circular serve as the basis for adjusting basic profits; the enterprise continues to allocate excess profits according to the guidance provided in Subsection 2.5.2.2.2 Point 2.5 Clause 2 Article 5 Part B of this Circular.

Example 22: Company X produces electronic integrated circuits for export to its parent company abroad with a selling price (revenue) equal to 1.1 times total costs.

Assumption:

- There are no comparable transactions or enterprises in the field of producing electronic integrated circuits.

- Company X selects 10 enterprises in the electronics manufacturing industry to determine the standard market price range and corresponding median value (according to Article 5 Part B of this Circular), the result shows that the median of the standard market price range of the pre-tax income margin on net revenue of the 10 selected enterprises is 30%.

- When analyzing the economic criteria reflecting the investment efficiency of the electronics manufacturing industry, Company X determines that a pre-tax income margin on net revenue of 30% is consistent with the actual operations of Company X (i.e., there are no significant differences requiring adjustment).

Thus:

- Company X can check its pricing to ensure it achieves a pre-tax income margin on net revenue of 30%, or base the calculation of the pre-tax income margin on total costs on the pre-tax income margin on net revenue to compare and make adjustments.

- The recalculation may be determined as follows:

+ Pre-tax income margin on net revenue = (net revenue - cost) / net revenue = 0.3

+ Net revenue = 1.429 times cost

2. Application of data between periods

Enterprises apply related party transactions with determined market prices according to the guidelines set out in this Circular between periods (not exceeding 5 years from the date of occurrence of the related party transaction), prepare comparative analysis files of four influencing factors between transactions, adjust significant differences, and use objective bases to adjust economic values over time (such as average price increase rate, interest rate, inflation rate, economic growth rate) to determine the appropriate product price, gross profit margin, or return on sales of the related party transaction occurring during the period of filing corporate income tax.

Example 23: Enterprise A is a wholly foreign-owned enterprise and the only enterprise mining and processing metal ore X for export in Vietnam with the following information:

- In 20xx1, Enterprise A conducted both related party transactions and independent transactions. For the related party transaction, Enterprise A applied the comparable transaction price comparison method and determined the unit price of the product to be 800 USD per ton of ore containing 35% metal X.

- In the year 2xx2, Enterprise A exported 100% of its products to the parent company (there were no independent transactions for comparison; the international market price for metal ore X increased by 20% in 2xx2 compared to 2xx1; other factors affecting the product price (metal content, delivery conditions, payment terms...) remained unchanged).

Therefore, Enterprise A shall declare and calculate tax revenue for the year 2xx2 based on the sale price of metal ore X at a unit price not lower than 960 USD/ton (= 800 USD/ton x 120%).

Article 7. Retention and Provision of Data and Documents Regarding Market Price Determination Method

1. Selection of Data and Documents

1.1. The data and documents used as a basis for comparative analysis must clearly state their origin so that the tax authority can verify them. Enterprises may use information and data from the following sources:

a) Information and data provided by state agencies, research institutes, associations, and specialized organizations recognized and responsible for publicly announcing or providing upon request;

b) Information and data confirmed or publicly announced by organizations and individuals engaged in independent service professions licensed to operate (for example: independent auditing agencies, registration and quality inspection agencies, organizations ranking and evaluating business reputation);

c) Annual or periodic financial reports and investment reports of listed companies published publicly according to stock market regulations and operating rules;

d) Data, documents, and materials related to business transactions provided by enterprises for tax declaration purposes and bear responsibility for them.

Data, documents, and materials originating from unofficial or unclear sources only serve as reference.

1.2. When selecting transactions for analysis, comparison, and calculation of gross profit margins or return rates, enterprises must reflect the data in a comparable format over a period of at least three consecutive fiscal years. For cases where enterprises have been in operation for less than three fiscal years or engage in seasonal business activities not occurring throughout the year, the time limit will be determined accordingly based on monthly, quarterly, or seasonal periods relevant to the activity.

1.3. When calculating relative figures (such as percentages) from absolute figures, enterprises round off to the third decimal place. In cases where relative figures are derived from published data without accompanying absolute figures and do not follow the rounding principle mentioned above, they should be taken as published.

Example 24:

- Absolute figures used to calculate the gross profit margin of 5.2856% would be rounded to 5.286%.

- Economic growth figures published as 7.8% should not be rounded.

- Interest rate figures published as 4.9854% should be rounded to 4.985%.

2. Requirements for Retaining and Providing Information, Documents, and Evidence

2.1. Enterprises with associated party transactions have the obligation and responsibility to retain information, documents, and evidence serving as a basis for applying the market price determination method to products in associated party transactions and to present them upon request for inspection and audit by the Tax Authority. Information, documents, and evidence related to production and business operations and the market price determination method for associated party transactions must be recorded at the time of the transactions, updated and supplemented throughout the transaction process, and retained in accordance with regulations on record retention and accounting books under laws on accounting, statistics, and taxation.

2.2. When settling corporate income tax, enterprises are required to declare associated party transactions according to Form GCN-01/QLT specified in Appendix 1-GCN/CC issued together with this Circular. The deadline for submitting Appendix 1-GCN/CC is the same as the deadline for submitting the corporate income tax settlement declaration form.

2.3. Enterprises have the obligation to establish and retain files containing information, documents, and evidence related to associated party transactions as follows:

2.3.1. General information about the enterprise and associated parties:

a) Information on the relationship between associated parties and the enterprise;

b) Documents and reports updating development strategies, management, and control among associated parties; pricing policies for each group of products according to the general direction of associated parties and the enterprise;

c) Documents and reports on the development process, business strategies, projects, investment plans, production and business operations; regulations and procedures for financial reporting and internal controls of the enterprise;

d) Documentation describing the organizational structure and functional operations of the enterprise.

2.3.2. Information about the enterprise's transactions:

a) Transaction diagrams and documentation describing the transactions including information on the parties involved, payment procedures, product transfer,...;

b) Documentation detailing product characteristics and technical specifications; detailed cost (or unit cost) tables for products, selling prices, total quantity of products produced and sold during the period (detailed by associated party transactions and independent transactions (if any)); quantities of products;

c) Information, documents, and evidence regarding the negotiation, signing, implementation, and termination of contracts and economic agreements related to the transactions;

d) Information, documents, and evidence related to market economic conditions when associated party transactions occur, affecting the transaction price determination method.

2.3.3. Information about the market price determination method

a) Policies for establishing purchase, sale, or exchange prices for products of the enterprise, control and approval procedures for prices, and product selling price lists on various consumption markets;

b) The information, documents, and evidence serving as the basis for proving the selection and application of the most appropriate pricing method in related party transactions of the enterprise include the information, data, and evidence used for comparative analysis, adjustment of significant differences, transaction price calculation sheets according to the pricing method applied by the enterprise, and explanations for the choice of such method.

c) Other reference information, documents, and evidence related to the selection and application of the pricing method in related party transactions (if any).

2.4. When requested by the Tax Authority, the enterprise shall have the obligation to provide the information, documents, and evidence within thirty working days from the date of receipt of the request document from the Tax Authority. In case the business has legitimate reasons, this period may be extended once for up to thirty days from the expiration date.

2.5. The information, documents, and evidence provided by the enterprise to the Tax Authority must be original or copies in accordance with the provisions of the law. In cases where enterprises use electronic vouchers, the provision of vouchers shall be carried out in accordance with the provisions of the Accounting Law and relevant regulations on electronic vouchers.

Documents and evidence recorded in foreign languages must be translated into Vietnamese in accordance with the provisions of the Accounting Law and accounting regulations. The enterprise shall be responsible for the content of the translation.

Part C.

RIGHTS AND OBLIGATIONS OF THE ENTERPRISE; RESPONSIBILITIES AND LIMITS OF THE TAX AUTHORITY

Article 8. Rights and obligations of the enterprise

In addition to performing rights and obligations under tax laws stipulated in tax regulatory documents and this Circular, enterprises also have the following rights and obligations:

1. The right to request the Tax Authority to keep confidential the information provided to the Tax Authority for the purpose of determining market prices in related party transactions for tax purposes.

2. The obligation to present complete data, documents, and evidence necessary to prove the selection and application of the most appropriate pricing method for related party transactions.

Article 9. Responsibilities and powers of the Tax Authority

In addition to performing responsibilities and powers under tax laws stipulated in tax regulatory documents and this Circular, the Tax Authority also has the following responsibilities and powers:

1. To keep confidential the information provided by the enterprise related to the determination of market prices in related party transactions for tax purposes as prescribed in this Circular when such information does not originate from publicly disclosed sources. The provision of confidential taxpayer information to relevant state agencies shall be carried out in accordance with the provisions of the law.

2. To set the price used for tax declaration, taxable income, or corporate income tax payable for enterprises with related party transactions in the following cases:

a) The enterprise relies on illegal, invalid documents, data, and evidence or those without clear source of origin to determine the price level, gross profit margin, or other profitability ratios applicable to related party transactions;

b) The enterprise creates fictitious independent transactions or rearranges related party transactions as independent transactions to use them as selected comparable transactions;

c) The enterprise fails to declare or inadequately declares Appendix 1-GCN/CC for related party transactions occurring during the corporate income tax settlement year; fails to comply with the deadlines for providing information, data, and documents to prove the declaration and accounting of market prices for related party transactions;

d) The Tax Authority suspects that the enterprise does not apply or intentionally applies incorrectly the provisions of this Circular, and the enterprise cannot prove otherwise within ninety days from the date of receipt of the Tax Authority's notification.

3. The General Department of Taxation bases on the tax obligation declarations of enterprises with related party transactions and the database of the Tax Authority to guide the implementation of tax setting according to the principle:

a) In cases where enterprises fully comply with accounting records, invoices, and vouchers: the setting of revenue, costs, or taxable income to determine tax obligations shall be carried out according to the market pricing methods prescribed in Clause 2, Article 5 and Article 6, Part B of this Circular based on the price levels, gross profit margins, or other profitability ratios determined by the Tax Authority suitable for each case or each business sector;

b) In other cases: tax setting shall be carried out based on the Tax Authority's database in accordance with the provisions on tax setting for enterprises that do not fully comply with accounting records, invoices, and vouchers or the provisions on handling tax violations;

c) In cases where tax setting involves standard market price ranges, the most appropriate value to determine the selling price, gross profit margin, or other profitability ratios applicable to enterprises subject to tax setting shall not be lower than the median value of the standard market price range determined by the Tax Authority; the most appropriate value to determine the purchase price applicable to enterprises subject to tax setting shall not exceed the median value of the standard market price range determined by the Tax Authority.

4. The General Department of Taxation guides the inspection and audit of enterprises implementing the provisions of this Circular.

Part D.

IMPLEMENTATION

Article 10. Effective Date

This Circular shall take effect 45 days from the date of issuance. The Circular No. 117/2005/TT-BTC dated December 19, 2005 of the Ministry of Finance on "Guidelines for Implementing the Determination of Market Price in Business Transactions between Related Parties" and Decision No. 37/2006/QD-BTC dated January 4, 2006 of the Minister of the Ministry of Finance on "Amending Circular No. 117/2005/TT-BTC dated December 19, 2005 of the Ministry of Finance on Guidelines for Implementing the Determination of Market Price in Business Transactions between Related Parties" are hereby abolished.

During the implementation of this Circular, if there are difficulties or obstacles, units and enterprises are requested to promptly report to the Ministry of Finance for timely research and resolution./.